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Byron D. Smith
Professional Corporation

P.O. Box 610
100 Conception Bay Highway
Spaniard's Bay, NL
Canada, A0A 3X0


byron@byronsmithca.com

 

Tax Tips and Frequently Asked Questions

The following list contains the most common questions that taxpayers ask us. To speak to a professional about these or any other questions you might have please contact us.

INDEX

1. TAX RATES
2. RRSP'S
3. IMPORTANT DATES
4. SALARY TO FAMILY MEMBERS
5. HST - NONE ON INSURANCE
6. BUYING A CAR?
7. HOME OFFICE EXPENSES
8. WHEN TO INCORPORATE
9. FISHING ENTERPRISES - ITC ON NEW EQUIPMENT
10. T1 CHECKLIST
11. SERVICES TO IMPROVE YOUR BUSINESS

Although every reasonable effort has been made to ensure the accuracy of the information contained in this site, no individual or organization involved in either the preparation or distribution of this information accepts any contractual, tortuous, or any other form of liability for its contents or for any consequences arising from its use. Direct consultation with a Chartered Accountant is advised.

1. CURRENT INCOME TAX RATES
The basic question that most people have is what are the current income tax rates. The tax structure that exists currently (2015) can be summarized as follows:

Personal tax:
Depending on the type of income and the amount, the Federal government's income tax rates are approximately 15% to 29%. Provincial taxes are determined based on your province of Residence. The Newfoundland Provincial tax rates are approximately 10% to 18%. Tax rates change on an annual basis. Taxpayers looking for more information on current tax rates can contact us.

Corporate tax rates:

Provincial
In Newfoundland there are two main categories that corporations can fall into for the purposes of tax: Corporations eligible for the small business deduction, which has a Newfoundland tax rate of 3 %, and those not eligible for the small business deduction, which has a Newfoundland tax rate of 14 %; for income over $500,000.

Federal
The Federal income tax rate for companies subject to the small business deduction is approximately 11 %. For income not subject to the small business deduction, i.e. over $500,000, the basic Federal income tax rate is approximately 33 %.

Readers should be cautioned that these rates are approximates and depend on the direct circumstances of the taxpayer. You should seek the advice of your Chartered Accountant to determine the exact rates for your company.

2. RRSP's
Why contribute to RRSP's? Because all interest earned accumulates tax deferred until the funds are withdrawn and you can deduct RRSP contributions to determine taxable income. This may create tax deferral \ savings of up to 50% depending on your income.

The amount you are able to contribute to an RRSP in the current year is noted on your revenue Canada "Notice of Assessment" for the previous year. The maximum contribution that you can make to an RRSP in the current year would 18% of the prior years earned income to a maximum contribution of $ 24,930. In order to contribute the maximum amount you would have to earn $138,500 in the prior year. Any unused RRSP contribution limits can be accumulated for future use. It is important to know the rules and the tax implications for contributions, the types of investments the RRSP can hold, and the ways in which withdrawals can be made.

If you turned 69 during the year you must convert your RRSP into cash or an RRIF (Registered Retirement Income Plan) by December 31.

If you have not yet started an RRSP, now is the time to consider this important component of your financial planning.

3. IMPORTANT DATES TO REMEMBER
April 30 is the last day to file your income tax return for individuals. February 28 - is last day for employers to file and distribute T4 Slips.

June 15 - is the last day for Self employed individuals to file income tax returns. However you are still required to have your taxes paid by April 30. Incorporated companies are generally required to file their return within 6 months of their year-end; however, any taxes owing will be charged interest after 3 months.

4. SPOUSAL SALARY
Self-employed individuals are permitted to pay a spouse or children a reasonable wage for work that is performed for business purposes. There are certain rules associated with this situation that need to be considered.

5. HST - NONE ON INSURANCE
Did you know that HST is not charged on insurance and it cannot be claimed as an ITC (Input Tax Credit) when preparing your HST return? Many businesses do not realize this until it's too late - when a HST audit is completed.

6. BUYING A CAR?
Buying a car through your business may not be a good idea. Generally people use a car for business use part of the time and part of the time for personal use. This creates a tax problem. The company must charge you a fee (standby charge) for using the vehicle and this is considered taxable income.

It may be better to buy the car for personal use and use it for business part of the time. Canada Revenue Agency permits you to charge mileage to the business and receive a tax-free reimbursement.

This is a complicated issue and each case should be considered separately. Consult with your Chartered Accountant before purchasing or leasing a vehicle.

7. HOME OFFICE EXPENSES
Individuals may be able to deduct certain home office expenses from their net income if they must incur home office expenses for employment or self-employment, however specific restrictions are placed on these deductions. The Federal government requires that you must qualify according to 2 criteria:

1.) The workspace must be your principal place of business
2.) The workspace must be used exclusively for business and used regularly to meet with clients, customers or patients of your business.

The amount you can deduct would be the prorated share of office expenses based on the square footage of your office versus the total square footage of your home. The business deductions are limited to the income from that business or employment.

Expenses that are deductible depend on the business and your personal situation; a Chartered Accountant can help you determine which expenses you can deduct.

8. WHEN TO INCORPORATE
The decision of when to incorporate your business depends on many factors. There are non-tax issues such as size of the business, your personal long-term goals and limiting your personal liability. For tax purposes only once the business consistently earns taxable income exceeding $30,000 you should consider incorporating. The benefits of incorporating your company can only be achieved by leaving profits in the business. By removing these profits from the company by paying additional Salaries and Bonuses you are increasing your personal taxes and decreasing the company's taxable income and income taxes. Generally, a company has a lower tax rate, about 15 % on income under $ 500,000, assuming the company is subject to the small business deduction. See number one above to compare the personal tax rates.

There are also benefits related to tax planning and succession planning. If selling the shares of a qualifying small business corporation you could be eligible for a $ 813,600 lifetime capital gains exemption.

The advice of a Chartered Accountant and your lawyer should be obtained before incorporating a business.

9. FISHING ENTERPRISES - ITC ON NEW EQUIPMENT
Fishing enterprises are eligible for an Investment Tax Credit for new fishing equipment that they purchase. This credit is 10% of the value of the equipment and is available in the first year that the equipment is available for use. Investment Tax Credits can reduce your federal income tax and may trigger a tax refund. You are able to carry-forward any unused credits for up to 10 years.

As this topic is quite complicated please contact your Chartered Accountant.

We are very familiar with the Fishing Industry and we especially welcome any inquiries from Fish Harvesters and Crew Members.

10. INCOME TAX RETURN CHECKLIST
Information required to complete your income tax return may include but is not limited to the following:

1. Information slips such as T-3, T-4, T4A, T4A(OAS), T4F, T4PS, TRIF, TRSP, T4U, T-5, T-10, TFA1, T101, T600, CTB, T5003, T5013, T5018 (Subcontractors) and all matching provincial slips.

2. Income of which no slips have been received like:
- Rental income
- Business income
- Other employment income
- Alimony, separation allowances, child support
- Pensions
- Interest earned (not received) ex Canadian savings bonds, Mutual Funds, Term Deposits and Deferred Annuities)
- Bursaries, scholarships and fellowships
- Professional fees
- Director fees

3. Details of expenses including:
- Employment expenses (Provide form T2200 "Declaration of Conditions of Employment"
- Investment counsel fees
- Interest on money borrowed with the intention to purchase investments
- Moving expenses - including costs associated with maintaining a vacant former residence
- Child care expenses
- Alimony, separation allowances, and child support
- Safety deposit box fees
- Accounting fees
- Pension plan contributions
- Film and video production eligible for tax credit
- Business research and development

4. Details of other investments including:
- Real estate investments (including Financial Statements)
- Oil and gas investment (including Financial Statements)
- Registered Educational Savings Plans
- Labour-sponsored funds

5. Details and receipts for the following:
- Professional dues
- Tuition fees - including mandatory supplementary fees and form T2202
- Registered Retirement Savings Plan contributions
- Charitable donations
- Medical expenses (including modifications to place of residence)
- Political contributions

6. Details of capital gains realized during the year

7. Details of previous capital gain exemptions claimed, business investment losses and cumulative net investment loss accounts.

8. Name, address, SIN, date of birth, and province of residence.

9. Personal status (Married/Common-law, single) and spousal information, if required.

10. List of any dependants and their birthrates.

11. Details of any dependant attending college or university. Such as tuition fees, number of months attendance, name of institution, income of dependant and form T2202.

12. If you or any of your dependants are disabled then provide form T2201 - the disability tax credit certificate. Also included are kidney dialysis and certain cystic fibrosis therapy.

13. Details regarding residence in an area that qualifies for the Isolated Area Deduction.

14. Child Tax Credit receipts

15. All details concerning RRSP - Home Buyers' Plan withdrawals

16. Receipts for income tax installments or tax payments.

17. Copy of prior year returns or notice of assessment and any other correspondence with the Canadian Customs and Revenue Agency.

18. Personalized tax information you may have received from CCRA.

19. If you want the direct deposit option for your tax refund or credit include a "void" personal cheque with your information.

20. Details on amounts carried forward from previous years such as; donations, losses, forward averaging amounts, registered retirement savings plans.

21. Information on any foreign property owned at any time during the taxation year including cash, stocks, trusts, partnerships, real estate, tangible and intangible property and contingent interests etc..

22. Information regarding income from or payments to foreign entities.

23. A federal income tax credit is available if you provided in-home care for a parent or grandparent over the age of 65 and the dependant's net income is less than $ 15,735. The caregiver may also claim training costs for any training related to the care of the dependant as a medical expense credit.

24. If you carried on a business you may deduct amounts paid for Private Health Service Plans.

25. Any Alternative Minimum Tax paid on RRSP's since 1994.

26. Details on any interest paid on student loans.

11. SERVICES TO IMPROVE YOUR BUSINESS
Cash flow projection
Expense reduction analysis / profitability analysis
Budgeting
Human resource services
Internal control evaluation and implementation
Setting up management reporting systems